Common Stock with Warrants Issued for Cash
Private Placement in January 2010
On January 20, 2010, the Company entered into Subscription
Agreements with "accredited" investors (or “the
Investors”). Pursuant to the Subscription Agreements, the
Investors purchased 1,470,588 shares of Company common stock at
$1.70 per share. The Company raised $2,500,000 in gross
proceeds and received net proceeds of $2,047,500. In connection
with the Financing the Company paid the following: (i) $150,000 to
an Investment Relations escrow account, (ii) $250,000 in placement
agent fees, and (iii) $52,500 in offering expenses, including legal
fees.
The Investors received one Series A Warrant and one Series B
Warrant for every $8.00 invested in the Company under the Purchase
Agreement. Series A Warrants grant the holder the right to purchase
shares of Common Stock at $3.00 per share. Series B Warrants grant
the holder the right to purchase shares of Common Stock at $5.00
per share. At the closing the Investors received Series A Warrants
to purchase 312,500 shares of Common Stock and Series B Warrants to
purchase 312,500 shares of Common Stock.
The Series A and Series B Warrants expire January 20, 2013. The
Warrants provide for antidilution adjustments to the exercise price
for certain convertible securities issued with conversion prices
lower than the Warrants' exercise price. The warrants are
exercisable into a fixed number of shares. Accordingly, the
warrants are classified as equity instruments. The Company
accounted for the warrants issued to the investors and placement
agents based on the fair value method under ASC Topic 505.The value
of warrants was determined by using the Black-Scholes pricing model
with the following assumptions: discount rate – 2.76%;
dividend yield – 0%; expected volatility – 100% and
term of 3 years. The value of the Warrants was $1,212,000.
In connection with the Financing, the Company entered into an
Investor Relations Escrow Agreement, pursuant to which the Company
established an escrow account of $150,000 which may be allocated
and released to investor relations firms for marketing purposes at
the sole discretion of a representative of the Investors. The
Company paid $150,000 to an IR firm for it to provide IR services
over two years. For 2010, the Company recorded $71,096 as an IR
expense. During the year ended December 31, 2011, the Company
recorded the remaining portion of $78,904 as an IR
expense.
In addition the Company issued the following securities: (i) Series
A Warrants to purchase 73,528 shares of Common Stock to placement
agents, (ii) Series B Warrants to purchase 73,528 shares of Common
Stock to placement agents, (iii) 180,000 shares of Common Stock to
an investor relations firm, (iv) 600,000 shares of Common Stock to
a consultant for business development and capital markets advice,
and (v) 7,000 shares of Common Stock for legal services. The value
of warrants was determined by using the Black-Scholes pricing model
with the following assumptions: discount rate – 2.76%;
dividend yield – 0%; expected volatility – 100% and
term of 3 years. The value of the Warrants was $285,000.
In connection with the financing, the Company also issued 27,000
shares to several legal counsels and 200,000 shares to a
consultant, First Trust China Ltd. The fair value of the shares
based on the market price at the date of the financing of $397,000,
was recorded as financing expense of the issuance of equity as a
charge to additional paid in capital.
Private Placement in December 2010
In December, 2010, the Company sold in a series of private
placement a total of 286,249 Units, each unit
comprised (i) four shares of common stock, (ii)
a three-year warrant to purchase one share of common stock at
an exercise price of $3.60 per share (the “Series C
Warrant”), and (iii) a three-year warrant to purchase one
share of common stock at an exercise price of $4.80 per share (The
“Series D Warrant”), for $2,747,973. The
Company received net proceeds of $1,976,413. In connection with the
Financing the Company paid the following: (i) $299,777 in placement
agents’ fees, (ii) $150,000 to an Investment Relations escrow
account, and (iii) $321,783 offering expenses, including legal
fees, financing consultant fees and bank account management fees.
The Company recorded $77,500 as IR expense during the year ended
December 31, 2011.
The Series C and Series D Warrants described above which expire at
December 2013 issued to the investors are immediately exercisable
and have a term of three years. Such warrants may be exercised
cashless in the event that there is no effective registration
statement providing for the resale of the common stock. The
exercise prices of the Warrants are subject to customary
adjustments provisions for stock splits, stock dividends,
recapitalizations and the like. Additionally, for a period of
three years following the final closing of the private placement,
anti-dilution protection shall be afforded the
investors, The value of warrants was determined by using
the Black-Scholes pricing model with the following assumptions:
discount rate – 2.76%; dividend yield – 0%; expected
volatility – 100% and term of 3 years. The fair value of the
Warrants was $974,322.
In connection with the private placement transactions, the Company
issued placement agents three-year warrants to purchase an
aggregate of 93,232 shares of common stock at $2.40 per share,
immediately exercisable, as consideration of services. The value of
warrants was determined by using the Black-Scholes pricing model
with the following assumptions: discount rate – 2.76%;
dividend yield – 0%; expected volatility – 100% and
term of 3 years. The fair value of the Warrants was $187,979.
Private Placement in January 2011
On January 28, 2011, the Company sold in a private placement
234,582 Units, each unit comprised of (i) four shares of common
stock, (ii) a three-year warrant to purchase one share of
common stock at $3.60 per share (the “Series C
Warrant”), and (iii) a three-year warrant to purchase one
share of common stock at $4.80 per share (The “Series D
Warrant”), for $2,252,000. The Company received net
proceeds of $2,016,900. In connection with the financing, the
Company paid $225,000 in placement agents’ fees.
The Series C and Series D Warrants issued to the investors and the
placement agents are immediately exercisable and have a term of
three years. The value of warrants was determined by using the
Black-Scholes pricing model with the following assumptions:
discount rate – 2.76%; dividend yield – 0%; expected
volatility – 100% and term of 3 years. The fair value of the
Warrants was $889,764.
In connection with the private placement transaction, the Company
issued placement agents three-year warrants to purchase an
aggregate of 75,000 shares of common stock at an exercise price of
$2.40 per share, immediately exercisable, as consideration of
services. The value of warrants was determined by using the
Black-Scholes pricing model with the following assumptions:
discount rate – 2.76%; dividend yield – 0%; expected
volatility – 100% and term of 3 years. The fair value of the
Warrants was $167,619.
Following is a summary of the warrant activity:
| |
|
Number of
Shares |
|
|
Average
Exercise
Price per Share |
|
|
Weighed
Average
Remaining
Contractual
Term in Years |
|
| Granted – series
A warrants |
|
|
386,028 |
|
|
|
3.00 |
|
|
|
3.00 |
|
| Granted – series B
warrants |
|
|
386,028 |
|
|
|
5.00 |
|
|
|
3.00 |
|
| Granted – warrants to
placement agents |
|
|
93,232 |
|
|
|
2.40 |
|
|
|
3.00 |
|
| Granted – series C
warrants |
|
|
286,249 |
|
|
|
3.60 |
|
|
|
3.00 |
|
| Granted – series D
warrants |
|
|
286,249 |
|
|
|
4.80 |
|
|
|
3.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Exercised |
|
|
- |
|
|
|
|
|
|
|
|
|
| Forfeited |
|
|
- |
|
|
|
|
|
|
|
|
|
| Outstanding at December 31,
2010 |
|
|
1,437,786 |
|
|
|
3.98 |
|
|
|
2.46 |
|
| Exercisable at December 31,
2010 |
|
|
1,437,786 |
|
|
|
3.98 |
|
|
|
2.46 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Granted – warrants to
placement agents |
|
|
75,000 |
|
|
|
2.40 |
|
|
|
3.00 |
|
| Granted – series C
warrants |
|
|
234,582 |
|
|
|
3.60 |
|
|
|
3.00 |
|
| Granted – series D
warrants |
|
|
234,582 |
|
|
|
4.80 |
|
|
|
3.00 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Exercised |
|
|
- |
|
|
|
|
|
|
|
|
|
| Forfeited |
|
|
- |
|
|
|
|
|
|
|
|
|
| Outstanding at December 31,
2011 |
|
|
1,981,950 |
|
|
|
3.97 |
|
|
|
1.63 |
|
| Exercisable at December 31,
2011 |
|
|
1,981,950 |
|
|
|
3.97 |
|
|
|
1.63 |
|
Stock-Based Compensation and Deferred
Compensation
On January 20, 2010, the Company issued 600,000 shares of Common
Stock valued at $3.26 per share to several consultants for
providing consulting services to the Company for a period of
twelve-month. During the year ended December 31, 2010, the Company
amortized $1,793,000 as stock-based compensation expense. During
the year ended December 31, 2011, the Company amortized $163,000 as
stock-based compensation expense.
On January 20, 2010, the Company issued 180,000 shares to an
investor relation firm for providing IR services for a period of
two-year; the stock was valued at $3.26 per share. During the years
ended December 31, 2011 and 2010, the Company amortized $311,084
and $277,324 as stock-based compensation expense. The IR service
was terminated during the third quarter of 2011.
During the first quarter of 2010, the Company issued 20,000 shares
to one employee with stock valued at $3.26 per share. The Company
recorded $65,200 stock-based compensation expense for the shares
issued to this employee.
On April 7, 2010, the Company issued 40,000 shares common stock as
annual compensation to four independent directors of the Company
(10,000 shares each) for one-year service period with stock valued
at $4.65 per share. The Company recorded $48,921 and
$137,079stock-based compensation during the years ended December
31, 2011 and 2010, respectively.
On July 28, 2010, the Company issued 40,000 shares common stock as
compensation to a consulting company for a one-month business
consulting service with stock valued at $3.18 per share. The
Company recorded $127,200 as stock-based compensation during
2010.
On October 3, 2010, the Company issued 500,000 shares common stock
as compensation to a consulting company for a one-month business
consulting service with stock valued at $2.70 per share. The
Company recorded $1,350,000 as stock-based compensation during
2010.
On November 18, 2010, the Company issued 29,167 shares common stock
as compensation to a former vice president of the Company with
stock valued at $3.20 per share. The Company recorded $93,334 as
stock-based compensation during 2010.
On December 29, 2010, the Company issued 25,000 shares common stock
as compensation to an investor relation company for a one-year IR
service with stock valued at $2.90 per share. The Company recorded
$71,904 and $596 stock-based compensation during the years ended
December 31, 2011 and 2010, respectively. The IR service was
terminated during the third quarter of 2011.
In December 2010, the Company issued 200,000 shares to a consulting
company for a three-month business consulting services with Far
East Strategies, LLC. The stock was valued at $2.44 per
share. The Company recorded $488,000 stock-based compensation
during the year ended December 31, 2011.
On November 11, 2010, the Company issued 80,000 shares to a
consultant for a one-month consulting service. The stock was valued
at $3.20 per share. The Company recorded $256,000 stock-based
compensation during the year ended December 31, 2010.
According to an investor relation agreement, the Company issued
5,000 shares to an IR firm on January 20, 2011 and January 24,
2011, respectively. The stock was valued at $3.35 and $3.90 per
share (stock price at grant date). During 2011, the Company
recorded $36,250 as stock-based compensation.
On April 2, 2011, the Company issued 1,500,000 shares to a
consultant for three-month consulting service. The stock was valued
at $2.95 per share. During 2011, the Company recorded $4,425,000 as
stock-based compensation.
On July 3, 2011, the Company issued 1,500,000 shares to a
consultant for a two-month consulting service. The stock was valued
at $2.32 per share. During 2011, the Company recorded $3,480,000 as
stock-based compensation.
On September 14, 2011, the Company issued 400,000 shares to a
consulting firm for a three-month consulting service. The stock was
valued at $2.00 per share. During 2011, the Company recorded
$800,000 as stock-based compensation.
On October 1, 2011, the Company issued 60,000 shares to three
independent directors (20,000 shares each). The stock was valued at
$1.93 per share. During 2011, the Company recorded $115,582 as
stock-based compensation.
As of December 31, 2011 and 2010, the Company had deferred
compensation of $0 and $918,303, respectively, of which, $0 and
$902,226 at December 31, 2011 and 2010 was current and to be
amortized within one year. Deferred compensation arose from stock
issued in advance for consulting and IR services to be
received.
Option to legal counsel
On October 4, 2010, the Company granted stock options to its legal
counsel to acquire 20,000 shares of the Company’s common
stock, at $2.70 per share, vested immediately with a life of 3
years. The options were vested in the grant date. The fair value of
the options was calculated using the following assumptions:
estimated life of three years, volatility of 100%, risk free
interest rate of 2.76%, and dividend yield of 0%. The grant date
fair value of options was $35,132. The Company recorded $35,132 as
stock-based compensation during 2010. The weighted remaining
contractual term for the option was 1.76 years at December 31,
2011.
